Banks, analysts welcome cut in cash reserve ratio

October 10th, 2008 - 9:05 pm ICT by IANS  

Mumbai, Oct 10 (IANS) Terming it as the “need of the hour”, bankers and analysts have welcomed the Reserve Bank if India’s (RBI) move to inject Rs.600 billion ($15 billion) liquidity through a cut in the cash reserve ratio (CRR) of commercial banks.According to regulations of India’s central bank, the cash reserve ratio determines the amount of cash that commercial banks must retain against their deposits made by their customers, technically called net demand and time liabilities (NDTL).

It is expressed as a percentage of deposits or NDTL and the RBI announced Friday that this percentage is being brought down to 7.5 percent from the existing 9 percent with effect from Saturday, Oct 11, 2008. The cut will result in freeing Rs.600 billion of cash in the Indian banking system and will ease the existing acute liquidity crunch that all banks are facing.

“The CRR cut was needed. There is no liquidity in the market,” said HDFC vice-chairman and managing director Keki Mistry.

When asked whether HDFC would ease home loan rates, Mistry said: “There are no plans to cut lending rates at the moment.”

Yes Bank’s chief economist Shubdha Rao said: “This is a welcome move. We need liquidity and this move will increase liquidity in the market.”

ICICI Bank joint managing director Chanda Kochar said: “This cut will have some cooling effect on call money rates.”

Indian Overseas Bank chairman S.A.Bhat said: “This cut will release around Rs.13 billion of liquidity in our bank.”

On funding projects, Bank of India chairman and managing director T.S.Narayansami said: “At present we are not looking for growth. We want to stay liquid. This move by the RBI was required.”

Motilal Oswal Securities Ltd senior vice-president in research Manish Sonthalia told IANS: “It is obvious that Rs.600 billion will be pumped into the money market. As an immediate fallout, money market interest rates will ease a bit.”

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